2.4 LTA Lifetime Allowance

2.4 Lifetime Allowance (Historical & Future Landscape)

The Lifetime Allowance (LTA) was once a central limit in UK pensions — and even though it was abolished in April 2023, its legacy still affects many savers. Understanding the history and the current rules is essential for those with larger pension pots or Defined Benefit schemes.

What Was the Lifetime Allowance?

The Lifetime Allowance (LTA) was the maximum value of pension benefits you could build up in total without facing an additional tax charge.

• Applied across all pensions combined (excluding State Pension)
• Measured at certain “crystallisation events”, such as taking benefits, turning 75, or transferring overseas
• Introduced in 2006 at £1.5 million, peaked at £1.8 million, then fell to £1.073 million before abolition

If your pension exceeded the LTA, the excess faced a tax charge of:

• 25% if taken as income (plus normal income tax)
• 55% if taken as a lump sum

Abolition: What Changed in April 2023?

The LTA was abolished from 6 April 2023 under the Spring Budget reforms.

Key changes:

• No more LTA tax charges on pension benefits from April 2023
• There is no longer a cap on the value of pension savings
• But… new rules were introduced around tax-free lump sums (see below)

While the charge was scrapped, some LTA-related limits still apply — especially on tax-free cash and for those with LTA protection.

Tax-Free Lump Sum (Pension Commencement Lump Sum)

Although the overall pension value is no longer capped, the maximum tax-free lump sum remains limited:

Standard limit:

• 25% of £1,073,100 = £268,275
• (even if your pot is much larger)

If you hold LTA protection:

• You may be able to take a higher tax-free lump sum
• Depends on your type of protection (Fixed Protection, Enhanced, etc.)

📌 This is now referred to as the Lump Sum and Death Benefit Allowance (LSDBA)

Do You Have Lifetime Allowance Protection?

If your pension savings were approaching the old limit, you may have applied for protection schemes such as:

• Fixed Protection 2012 / 2014 / 2016
• Individual Protection 2014 / 2016
• Enhanced or Primary Protection (from 2006)

These allow for:

• Higher tax-free lump sums
• Protection against retrospective LTA charges

These protections still apply post-2023, mainly for preserving tax-free lump sum rights.

⚠️ Why This Still Matters

Even though the LTA is abolished, it still matters if:

• You took pension benefits before April 2023 and were tested against the LTA
• You hold LTA protection
• You want to take a larger-than-standard tax-free lump sum
• You’re concerned about future political changes (the LTA could return)

Some providers and advisers are still assessing against the old LTA to maintain compliance for protected individuals.

Lifetime Allowance Timeline (Key Dates)

New Terminology from April 2024

From 6 April 2024, the LTA was formally removed from legislation and replaced with three new allowances:

1. Lump Sum Allowance (LSA) – standard limit of £268,275 tax-free
2. Lump Sum and Death Benefit Allowance (LSDBA) – typically £1,073,100
3. Overseas Transfer Allowance – typically £1,073,100 (used when transferring to overseas schemes)

These apply in different scenarios, and protections still interact with them

Summary

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We will look at another important restriction on allowances which requires care to manage - MPAA